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Wednesday, October 26, 2011

Water and Sanitation: A Quadruple Bottom Line Investment

By Anthony Randazzo, CFA, Senior Investment Officer

Something ironic happened to me the day before I spoke on a Water and Sanitation panel at the Impact Investing Summit in Washington, D.C.

I entered the kitchen at 6:30 in the morning to make my first dose of coffee, but when I reached for the faucet to fill up the kettle, no water came out - just an annoying hissing sound. A water main had burst in the middle of the night, knocking out the water supply in our entire neighborhood.

If you are like me, then you believe things happen to you for a reason. So, it occurred to me as I stood in my kitchen wondering how I was going to get ready for work that perhaps I was meant to feel solidarity that morning with the 884 million people in the developing world who live without clean water every day. We take clean water for granted, so what better way to prepare a heartfelt presentation on water than to live without it for a day?

Personal water deprivations aside, the Impact Investing Summit provided me an opportunity to interact with commercial and institutional investors from across the financial spectrum to discuss how to use investment to alleviate poverty and address environmental issues. The panel discussion on Water and Sanitation was well received and I, along with co-panelists Rich Thorsten from Water.org and D. Paul Sathianathan, of Guardian, fielded questions about what we do, how our organizations tackle the water and sanitation scarcity issue and why we have chosen to work in this space.

To date, the Calvert Foundation has invested approximately $4 million in social impact investments for improved water and sanitation. Most of this has been indirect, through loans to financial intermediaries that have invested in water and sanitation, but we also have a direct investment in E-Healthpoint, a social enterprise that provides clean water and affordable healthcare in rural India. Why is Calvert Foundation interested in this sector? There are two main reasons.

A woman selling drinking water on the

streets of Mumbai in India. Proof that water can

generate income for the working poor.

Photo by Anthony Randazzo

A “quadruple bottom line”

For one, if done right, investing in water and sanitation can be a rewarding proposition. We have all heard of companies that generate a “double bottom line” i.e. that generate both financial returns and a “social” return (i.e. reduce poverty). However, water can achieve at least four types of impact, producing what I like to call a “quadruple bottom line.”

It can have a direct impact on health. Waterborne diseases are a major cause of diarrhea and other illnesses that kill poor people in developing countries. It is estimated that 1.5 million children under the age of five die every year as a result of water and sanitation-related diseases.

It can have a gender impact. Women and girls shoulder 72% of the burden for collecting water for the household. By freeing up their time, women can live more productive lives and girls can spend more time in school.

It can have a positive economic impact. Clean water can generate revenue for the family if it is sold or used to maintain a small business. It can also translate into increased savings if better health means higher productivity or less money spent on healthcare.

Finally, water can have a conflict resolution impact. We live in a world where countries enter into conflict over scarce resources. It is not inconceivable that countries will one day fight over water. By investing in clean water today, we can reduce the likelihood that conflicts over water will happen tomorrow. Better water resource management can also improve food security.

Social and Environmental Impact

The other reason why Calvert Foundation is interested in water and sanitation is because our investors are increasingly interested in achieving both a social return on their investment as well as an environmental impact. However, finding investments that reduce poverty, solve environmental problems, and produce a stable return can be challenging.

We need to keep in mind that there are 2.6 billion people without access to improved sanitation in addition to the 880 million without clean water. Those are large numbers, so you need to harness the private sector to find a solution to these problems. The failure of governments to provide these public services in the developing world has meant that the private sector has had to step in to try to fill the void with “off-grid” solutions. In fact, there are many simple, affordable off-grid solutions available to provide clean water and improved sanitation at the base of the economic pyramid. These range from household water purification systems, to rainwater harvesters, to simple pit latrines.

However, finding the right business model that can deliver such products and services at scale and at an affordable price can be a challenge. There are many organizations out there focused on addressing the water and sanitation issue, but in my experience, most are donor-dependent and few are set up to harness the private sector in a sustainable, scalable manner. The carbon-offset market might provide an answer, since off-grid water purification provides an alternative to boiling, but it remains to be seen if this additional revenue can be tapped as successfully by the water sector as it has by the renewable energy sector. It may be that social enterprises in the water and sanitation sector are today where microfinance institutions were 15 years ago, i.e. still reliant on donor funding to absorb start-up costs and stimulate private investment.

In September of 2010, the Human Rights Council recognized the right to water and sanitation as legally binding under international law. This will help to underscore the responsibility of governments to deliver water and sanitation to their citizens, but it will take time and resources for the public sector to bridge the gap. For this reason, we have to continue to find market-led solutions to the problem since charity alone will not get us there.

Moreover, we all need to be reminded that water is a scarce resource, and not having it for a day will make you realize (as I did) that you can get ready for work with very small quantities of water (from my tea kettle and Brita water filter).

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Calvert Foundation has made it possible for everyday people, not just institutions, to invest in organizations that serve disadvantaged communities. It’s a win-win. You can lift people out of poverty through an investment that also earns a financial return.